Having a backup is necessary if we want to prevent disaster. This mindset also applies to our investments in the stock market. We like to diversify our stock portfolio to ensure we hedge against possible downturns.
However, it is also a great idea to diversify our portfolio to assets that are not on the stock market. Some of these investments are treasury bonds, high yield savings accounts, and physical real estate. Another possible option is to invest some of our cash into Fundrise—a REIT that does not trade on the stock market.
Welcome back to the Introduction to R.E.I.T.s series (part I, part II, part III, part IV). It has been over eight months since I updated this series, so I am excited to get back into the fray. Let’s jump back to our coverage of Fundrise.
Will You Make a Good Landlord?
What is Fundrise? From Nerdwallet, “Fundrise is an online real estate company that gives investors access to private real estate deals, but be wary of underlying costs.”
If you want a deeper understanding of Fundrise, please read the above article. I want to focus on my experience and how Fundrise reacts to market forces versus some of the REITs I have on the stock market.
My Fundrise Experience. I started my Fundrise account in September 2019 with a $1,000 investment. At the time, $1,000 was a large sum of money compared to my overall portfolio, but I was hellbent to diversify my exposure to the stock market.
Over the last two years, Fundrise has been extremely good to me. I don’t have any complaints. As you can see from the picture above, my account didn’t react adversely during the 2020 stock market crash.
Even better, since Fundrise owns physical properties, we all benefited from the bull market in real estate. In October 2021, I received a dividend of $71. On an annual basis, that is close to a 5% yield on costs. I am pleased with this number because finding a solid yield is hard without being on the stock market.
Why Do I Need to Invest in the Stock Market?
Fundrise vs. the Stock Market. Speaking of the stock market, this isn’t a review of Fundrise; it is a comparison of Fundrise vs. REITs I own on the stock market. Let’s identify some of the stocks I own on the stock market first. Also, my rate of return (minus dividends).
- AGNC (AGNC). A mortgage REIT and one of my largest holdings overall. (-2.10%)
- Annaly (NLY). Also, a mortgage REIT. (+2.61%)
- Iron Mountain (IRM). A storage REIT. (+73.34%)
- Public Storage (PSA). A storage REIT with a decent amount of growth. (+26.61%)
- Independent Realty Trust (IRT). An apartment REIT. (+55.51%)
- Gladstone (LAND). A farmland REIT (+28.36%)
- Medical Properties (MPW). A Medical Building REIT (-0.76%)
- Vanguard REIT Index (VNQ). An ETF that holds mostly REITs. (+17.76%)
- Fundrise 13.2%
As you can see, I have a good selection of REITs scattered across my portfolio. My market performance varied wildly, mainly based on when I purchased the underlying stocks.
It is essential to realize that I purchased most of my stock market REITs right after the downturn ripped through their share prices. That is one of the benefits of leveraging the stock market; you can find good discounts if you know how to shop.
Performance. From a performance standpoint, I believe Fundrise holds its ground against my stock market REITs. The REITs on the stock market bounced back from a rough 2020 and saw terrific gains. Fundrise was able to continue to grow consistently, no crash necessary.
Liquidity. The main difference between these REITs is that Fundrise is not as liquid as the stocks on the market. This means that you can’t sell out of your position as quickly as on the stock market. If the stock market is open, I can sell all of my REITs in 10 minutes and have my cash in 48 hours.
Fundrise is working to increase its liquidity. However, they are straightforward in telling investors that they can lock you out of your money during a panic event. You see, panic selling during a downturn causes REITs to sell their physical properties, usually at a loss or not at reasonable prices. This causes the Net Asset Value (NAV) to decrease, which isn’t good.
Fundrise tries to prevent investors from harming themselves and others by locking investors out of their cash during times of trouble. I wholeheartedly agree and understand their methods.
Retire Early as a Well-Rounded Millionaire
So only invest in Fundrise what you can afford to lose. Real Estate is a long-term investment, and you are investing in physical properties with Fundrise. Don’t expect to jump in and out of assets like the stock market.
Conclusion. Overall, I love having Fundrise sit outside of my stock market investments, ensuring its own asset class. I love the updates on new properties and investments. It keeps investors up-to-date with the happenings in the REIT.
I invest $100/month in Fundrise. I plan on investing in Fundrise for the long term because I see great things in the future. I highly recommend this as a real estate substitute if you can’t afford to get into physical real estate yet.
However, I would still invest in a couple of REITs on the stock market. You can find great deals on the stock market if you know how to shop.
Thanks for reading the Intro to REITs series; I will continue my coverage of REITs moving forward. Please follow me on Twitter and my Facebook Page. Enjoy and Happy Investing.
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